Sanctions Compliance as a “Wide Net”: Payments Under Confirmed Standby Letters of Credit Are Prohibited When “In Connection With” Aircraft-Lease Arrangements, and SAMLA s44 Shields Against Debt, Interest and Costs on Reasonable Belief

1. Introduction

This Supreme Court decision addresses two recurring tensions in modern sanctions litigation: (i) how broadly trade/financial sanctions should be read where the statutory purpose is to “put pressure” on a target state, and (ii) how far statutory “safe harbour” protections extend for persons who withhold performance believing—reasonably—that sanctions require it.

The dispute arose from the London branch of UniCredit Bank GmbH (the “Bank”) refusing—pending UK licences—to honour demands under 12 irrevocable standby letters of credit (confirmed in London, governed by English law, subject to UCP 600). The beneficiaries were Irish lessors/service entities (Celestial Aviation Services Ltd; Constitution Aircraft Leasing (Ireland) 3 Ltd; Constitution Aircraft Leasing (Ireland) 5 Ltd). The letters of credit secured Russian airlines’ obligations under leases of civilian aircraft. Following Russia’s 2022 invasion of Ukraine, and the expansion of UK Russia sanctions from 1 March 2022 to cover “critical-industry goods” including aircraft, the lessors terminated the leases; most aircraft nevertheless remained in Russia and continued to be used there without consent.

2. Summary of the Judgment

• Regulation 28(3)(c) construed broadly: “In connection with” does not require a causal link between the payment and the prohibited supply/making-available of aircraft. A factual connection between the payment and an “arrangement” (here, the aircraft leases) is sufficient.
• “Arrangement” includes pre-existing and terminated leases: The aircraft leases were “arrangements” whose object (and objectively assessed “object or effect”) was making aircraft available for use in Russia / to persons connected with Russia. Termination for default did not change that object for the purposes of the descriptor in regulation 28(3)(c).
• Result: The Bank was prohibited from paying until licences were obtained; the payment obligation was treated (on the parties’ shared premise) as suspended during the prohibited period; statutory interest did not accrue during that period.
• SAMLA s44: Section 44 provides a defence (not a bar to bringing proceedings) and, on its proper construction, would protect a person with the requisite reasonable belief from liability in civil proceedings for debt, interest and associated costs “in respect of” the omission to pay.
• Disposition: The lessors’ appeals on regulation 28(3)(c) were dismissed; the Bank’s cross-appeals on section 44 were allowed.

3. Analysis

3.1 Precedents Cited

A. The decisions below (and how the Supreme Court positioned itself)

• [2023] EWHC 663 (Comm) (Deputy High Court Judge Christopher Hancock KC): held regulation 28(3)(c) did not prohibit payment because (in substance) payment fell outside the perceived purpose; the Supreme Court rejected that narrower approach, endorsing the “wide net + licensing safety valve” construction.
• [2023] EWHC 1071 (Comm): found the Bank’s belief was held but not reasonable, so section 44 was not engaged on the facts and interest/costs were awarded; in the Supreme Court, the section 44 issue became a pure construction question (the Court of Appeal’s unchallenged finding of reasonable belief being assumed for that purpose).
• [2024] EWCA Civ 628; [2025] 1 WLR 196: held payment was prohibited by regulation 28(3)(c) (broad factual “connection”), suspending enforceability until licences; the Supreme Court agreed on the sanctions interpretation, but disagreed with the Court of Appeal’s obiter view that section 44 would not protect against debt/interest/costs.

B. Statutory interpretation authorities relied upon for method, not outcome

• R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department ("R (O)") [2022] UKSC 3; [2023] AC 255: reaffirmed that interpretation seeks the meaning of the words in context and purpose, with statutory language as the primary guide.
• News Corp UK & Ireland Ltd v Revenue and Customs Comrs [2023] UKSC 7; [2024] AC 89, R (N3) v Secretary of State for the Home Department [2025] UKSC 6; [2025] AC 1473, Darwall v Dartmoor National Park Authority [2025] UKSC 20; [2025] AC 1292, X v Lord Advocate [2025] UKSC 44; [2026] 2 WLR 43: cited to confirm the consistent modern approach to contextual, purposive construction.
• Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591 and R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] 2 AC 349: cited via R (O) to emphasise that citizens should be able to rely on the statutory text as enacted.
• R (UNISON) v Lord Chancellor [2017] UKSC 51; [2020] AC 869: used to support the proposition that denying access to justice would require clear words; this underpinned the Court’s conclusion that section 44 is a defence to liability, not a prohibition on bringing civil proceedings.

3.2 Legal Reasoning

A. Regulation 28(3)(c): “in connection with” is broad and non-causal

The Court held that the statutory language connects the prohibition to an arrangement, not directly to the prohibited supply event itself. The critical interpretive move was to give real work to the pairing:

• “in pursuance of” = performance under or in accordance with the arrangement;
• “in connection with” = a broader factual link to the arrangement.

Applying the presumption that different words convey different meanings, “in connection with” was not read down to require a causative link. The Court accepted that this produces a “wide net”, but treated that as a deliberate policy choice in a sanctions regime backed by criminal penalties and complemented by a licensing mechanism.

B. Purpose served through “wide net + licensing safety valve”

The Court accepted the stated purpose (regulation 4 and parliamentary reports under SAMLA) was broadly “to put pressure on Russia” by disrupting strategic industries such as aviation. It concluded that purpose is served not only by targeting “mischief” cases perfectly, but by:

• casting prohibitions broadly where vital public interests are engaged, and
• allocating hard, fact-sensitive, and policy-laden exceptions to public licensing authorities (institutionally competent and democratically accountable).

A key practical point was the nature of standby letters of credit and “compliant demands”: beneficiaries need not disclose particulars, so the paying/confirming bank cannot reliably adjudicate whether a payment is linked to ongoing prohibited making-available (eg rent). The Court viewed the licensing process—not private inquiries—as the intended decision point for risk-laden determinations.

C. The aircraft leases were “arrangements” even if pre-existing or terminated

The Court rejected arguments that (i) arrangements made before 1 March 2022 were excluded, (ii) existing arrangements were outside scope, or (iii) termination removed the arrangement from the descriptor “whose object or effect is…”.

The Court treated “object” as objectively fixed at formation; termination does not retrospectively change the lease’s object (making aircraft available for use in Russia / to Russian-connected persons). This avoided a construction that would permit easy circumvention by drafting payment obligations to arise only after termination.

D. Section 44 SAMLA: a broad civil-liability defence “in respect of” omissions

On section 44, the Supreme Court squarely rejected the Court of Appeal’s obiter distinction between liability “for non-payment” and liability “for the pre-existing debt”. The Court reasoned:

• Section 44 does not bar bringing proceedings (no clear words to do so: R (UNISON) v Lord Chancellor), but it does provide a defence to liability.
• A debt action is brought precisely because of the debtor’s omission to pay; liability is therefore “in respect of” that omission (section 44(2) read with section 44(3)).
• Claims for interest and costs are likewise consequential on (and “in respect of”) the omission to pay.

The Court anchored this in section 44’s purpose: protecting compliance behaviour (including omission to pay) where the person reasonably believes sanctions require it, because payment could undermine the public sanctions regime.

3.3 Impact

• Sanctions scope for financial instruments: Banks and other payers cannot assume that payments to non-Russian beneficiaries are “safe” merely because funds do not causally facilitate prohibited making-available. If the payment is factually “in connection with” an arrangement with the proscribed object/effect, licensing may be required.
• Letters of credit risk allocation: The decision reinforces that sanctions risk can fall on the beneficiary through delayed payment where the paying bank is within UK jurisdiction, even if the beneficiary is outside Russia and the underlying performance is disputed or has ended.
• Litigation strategy and remedies: Where payment is prohibited (or reasonably believed to be), debt claims may still be issued, but section 44 can defeat liability for principal, interest, and costs during the protected period—shifting pressure toward prompt licensing applications and careful evidencing of “reasonable belief”.
• Drafting and compliance governance: Commercial parties will likely increase sanctions clauses addressing (i) timing and cooperation on licence applications, (ii) information-sharing to support licensing, and (iii) allocation of interest/costs risk pending authorisations.

4. Complex Concepts Simplified

• Standby letter of credit / confirmation (UCP 600): A bank promises to pay the beneficiary upon presentation of specified documents (a “compliant demand”), typically without investigating the underlying dispute. A “confirming bank” adds its own independent payment undertaking.
• “Compliant demand”: A demand that matches the letter-of-credit formal requirements. Here, it could be as bare as stating the lessee failed to comply with lease obligations, without particulars.
• Regulation 28(3)(c): Prohibits providing “financial services or funds” if done “in pursuance of or in connection with” an arrangement whose object/effect is making restricted goods (including aircraft as “critical-industry goods”) available to Russia/for use in Russia.
• “In pursuance of” vs “in connection with”: The former means “under the arrangement”; the latter is broader and captures factually linked payments even without causation.
• Licensing regime: A statutory mechanism allowing what would otherwise be prohibited; the Court treated it as the intended way to mitigate overbreadth.
• SAMLA section 44: A statutory civil-liability shield where a person acts/omits to act in the reasonable belief that doing so complies with sanctions; it operates as a defence to liability (including for debt, interest, and costs), not a ban on suing.

5. Conclusion

The Supreme Court established two important propositions for UK sanctions and commercial payment disputes. First, regulation 28(3)(c) operates as a deliberately broad “wide net”: “in connection with” requires only a factual connection to an arrangement whose object/effect is making restricted goods available to Russia/for use in Russia, and does not require causation; pre-existing and terminated leases can still qualify by their objective “object”. Second, section 44 SAMLA, where its conditions are met, protects against civil liability not only for interest and costs but also for the debt claim itself, because such liability is “in respect of” the omission to pay in asserted compliance with sanctions.